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The Effect of Venture Capital on IPO Firms’ Operating Performance Based on Shenzhen Small and Medium Enterprise Board in China  

The Effect of Venture Capital on  IPO Firms’ Operating Performance  Based on Shenzhen Small and Medium Enterprise Board in China         

The Shenzhen Small and Medium Enterprise board (SME board) was launched as a basis for fast-growing enterprises in order to provide more financing and stimulate technological innovation in China. Between 2006 and 2007, the venture capital market in China grew by around 52.1%, reaching $1.8 billion in 2007. Empirical studies concerning the U.S. revealed that venture capital has a positive impact on business performance and provides value-added services as well. In spite of its innovativeness, this thesis is not considered to be particularly interesting in Asia. In view of the newly-launched SME board, this paper illustrates different perspectives and methodologies in order to present a relatively comprehensive analysis of the venture capital (VC)-performance nexus. This paper’s results show that there is no significant difference between VC and non-VC backed IPO firms, in terms of underpricing and agency costs. On the other hand, we find that VC-backed IPO firms’ operating performance and excess profit tend to fall after their IPO and are not as good as those of non VC- backed firms. In spite of this, venture capital can inspire innovation and high-tech development in Asia. From an analyst’s viewpoint, VC plays an important role in enhancing the operating performance of IPOs. In view of the time period of the research data, it can be concluded that the introduction of VC in the Shenzhen SME board will have a positive impact on IPO, leading to market maturity and a more efficient assistance system.

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